recession incoming

Online Lending During a Recession

There is a lot of discussion about online lenders and the inevitable upcoming recession. While many online lenders are willing to take risks in lending to businesses currently, these risks will be far and few between as a recession sets in. The 2008 recession saw bank lending decrease. The amount of financing dropped as well as the amount of qualified applicants. Banks were more risk-averse in their lending which saw the total amount of small business owners looking for funding having to find alternative financing options. This is the cause of online loans and merchant cash advances gaining mainstream popularity. These lenders were willing to absorb more risk. With an upcoming recession, and the consolidation of assets in these larger online lenders, the risk they are willing to absorb will be considerably less.

UPDATE: Kabbage furloughs “a significant number” of it’s American workforce. This is due to the COVID-19 pandemic and the increased difficulty of operations during this time. Small businesses with existing loans may face delinquencies and small businesses looking for online loans from Kabbage may not be able to be evaluated for a loan. If you are looking for fast business funding at this time, please read our article on SBA Economic Injury Disaster Loans and how to fund your business.

signs of recession

An important step in preparing for a recession as a small business owner is to ensure your business will have the steady financing that it needs to grow and survive. A bank loan or line of credit may not offer you the full amount of financing you seek. Additionally, online loans may be less than your needs demand. Invoice factoring offers an advance on your receivables, improving cash flow, while minimizing debt and risk of non-payment. A recession can drive many business owners to desperation when searching for capital, and invoice factoring is another barrier of protection to a small business.

Already, there are reports of online lenders tightening their requirements for approval. Some lenders claim to have alternate criteria that can determine credit-worthiness, while some lenders may be overlooking major red flags for business owners seeking financing. These losses will ultimately affect the lender’s ability to be consistent in their funding of clients.

Other strategies that online lenders are using to protect themselves from recession is to lock in longer term loans. This means that business owners are being shuffled into longer contracts with less flexibility in their financing options.

small business loans

When other lenders shut the door, invoice factoring companies offer financing during recessions. Why? Because as long as you are selling goods to strong customers, a factor can offer money at no risk. Factoring facilities do not ask for personal collateral, so your house is not at risk. Instead, the collateral is your receivable and the value of the invoice. Business financing does not require a personal cost. As long as your business is selling verifiable goods or services to another business on credit terms, you are eligible for fast and flexible financing in the form of invoice factoring.

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